#501 Residence - Can or Should You Afford It?
Candid Conversation Memo
#501 Residence – Can or Should You Afford It?
Did You Buy Modest or Excessive? –
If you’re fortunate, you own a residence. You likely also own a mortgage. When you bought it, you probably wondered ‘how in the world’ you were going to be able to make, say 365 on-time monthly payments in a row, and never be late. That’s 30 years, right? You wonder about whether there will be hard times in that life-time of making payments, like a job layoff, or something else, something worse.
Over the past few decades, many households have developed into two full-time incomes. Surely, you thought, you’d be very careful and not let your debt get out of control, as it’s taking two incomes to afford the house in the first place. You justified the purchase being supported by two incomes, because housing prices have increased so high. You reasoned that two incomes were necessary to afford ‘a decent’ lifestyle, and everything else that goes with it. And, with two incomes, you can, and probably did leverage up to the fullest before you knew it. You ended up buying more home than you needed, not to mention all the nice vehicles, toys, furnishings, and many of the finer things in life. And, rather than wait, you purchased much of the toys and vacations on credit too. You no doubt felt a sinking feeling as you got further and further out on the ‘end of the limb.’ You’d get serious about the debt levels ‘really soon,’ like a New Year’s Day resolution, but it didn’t ever happen. Life is simply going too fast, and everything is in a blur. In other words, you’re now highly leveraged – you’re heavily in debt.
Then Comes the Piling On. Oh No, Now What? –
On
And, when timing couldn’t be worse, something big breaks, a major repair is needed, unexpected medical and dental bills join the party through the back door. Out comes the credit card, and another credit card. And you, or your spouse, to be able to earn more money, now decides it’s best to go back to school. Along comes a student loan, and another one. And another one. Oh, and you needed to replace the driveway because it collapsed when rain water was running under it that you were unaware was happening. Your neighbor stops by and tells you of his plans to install a new expensive vinal fence and wants to know if you’ll go in half.
Surprise, surprise. Out comes yet another credit card. Before you know it, you are making the equivalent of two mortgage payments, and not one. One for the mortgage on the house, the other equals the sum of all the other payments, or more. Because of the rise in housing prices and some appreciated equity, next comes a refinance of your debt into a new mortgage which gives you some breathing room – for now.
Or, perhaps it’s a second mortgage, or a home equity loan to consolidate everything. You realize that you’ve lived in your home 10 years, and that your mortgage balance has increased over $120,000 from when you first bought the house. You realize that in the 120 months you’ve lived in the home, you’ve effectively borrowed an additional $1,000 every month all that time. Now, after the grand refinance, you find out each of the children need expensive braces for their teeth, and the car’s transmission just failed. Out comes the credit cards again. ‘Oh great, you’ve got to be kidding me,’ you say.
But you’re ‘smart’ because you’ve got some cushion in your budget from the refinance. The last thing you want is another car repair like this so you trade it in on a brand-new car. And besides, you deserve it, right? In the back of your mind, however, is that hefty new car payment for the next seven years. With some buyer’s remorse, you wonder if you’ve blown it, again. You could have easily paid half of what you did for a reliable vehicle. But you wanted all the extras. Of course, you were not thinking about what the neighbors would be thinking, or admiring, right?
Now, your spouse comes home and talks about some issues at work and how much everyone hates the new boss. You instantly know where this might be going again. You’re now in a dazed mode and you can’t think clearly any more. You’ve developed a fake laugh, like people do while pretending to show they are happy, but you know how you really feel beneath the fa?ade. And your spouse begins to feel it too, especially now that it’s time to go to work with the hated boss all day.
You sense a change is coming with the job issues, likely to result in lower income too. You get the picture. How could all this happen? Well, it did. This stuff happens all the time. Now what do you do, right?
Then Comes the ‘Wake-Up’ Call. You Start to Feel Some Pressure, Economic Pain –
But along comes an unexpected reduction of income you thought would never happen to you and your great job. You’re doing wonderful things at work, so how could you possibly be laid off from your job? All of a sudden you recall the feelings you had about potentially being laid off when you took out that mortgage a few years ago. Now it has happened. And, you’re up to your neck in debt. You just knew it would be your luck that it would come someday, but hoped it wouldn’t. But being laid off truly just happened, maybe for the first time. You’re optimistic but stunned. It’s no longer a bad dream but a reality.
Another possible scenario might be where your spouse becomes sick or injured, and can no longer bring in the income everyone depended on. Or, let’s say a working mother is needed more at home, or she simply desires to be home with the children. Or, let’s say you and your spouse want to begin paying religious contributions to your Church, like a full 10% of your income as a tithe. You feel stress like you’ve never felt before. Pressure is building everywhere, and it’s not stopping. Suddenly, the sweetness of life has taken a challenging turn. Anxiety and stress continue to build and you, as sweethearts, are suddenly becoming the first victims of criticism and disrespect. Yelling at and being mean to the precious children come next. What is happening, you say?
A Day of Reckoning Comes. But a Solution is in Sight –
You finally put together your personal Tunabudget Worksheet Plan one day. For the first time, you can start to see what happened to your finances over the years. Maybe it was because of selfishness, greed, pride, foolishness, carelessness, negligence, recklessness, being unwise, bad luck, adversity, misfortunate, accidental, or a disaster. Life just happens.
We are responsible for what ‘cards we are dealt,’ so deal with them. Life-stuff happens to everyone. But you can really start to see and better appreciate where you are financially, probably for the first time as you pre-spend your income for the next year or two. You start to ask yourself and each other some serious questions. But when you look at each other there’s a ‘sinking feeling.’ Neither of you want to bring up the fact that you may now be in a home or mortgage that you can no longer afford – that you should no longer afford.
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This means you (both) know what you need to do: sell the house and retire your debts. You know that your debt level is very high, too heavy, and that you’re working yourself to death. Your marriage and family relationships are suffering. You’re tired. You’re exhausted and spent. Maybe you’re sick and have been for some time. This isn’t what you want, right? There’s way too much stress, anxiety, and uncertainty. How are things going to change, especially bringing two spouses together on the same page?
Priorities Change from the Inside, and You’ll Do Anything for a Fresh Start –
After digesting your Tunabudget Worksheet Plan for a few days, you both start to realize something has to change. One thing you’re not going to do change is you and your spouse. You’re going to go through this together. You decide that the mess you’re in must stop and get fixed. You are now willing to do a complete start over regardless of what family, friends, or neighbors may think.
By this point, you want nothing to do with debt again. You’ll do anything to get out from underneath it. You’ll avoid it like a plague. Yes, you both decide to sell the toys and get rid of that debt. You may have decided to downsize the nice cars. You next decide to sell the extravagant home and start over with the smallest home you can find. You’ll use the remaining equity to pay off everything else. You’ve both had enough and have determined that you really can’t stand the heavy burden of crushing debt any longer.
You want something more in life, like having simple memories with each other as a couple, and as a family. No more of the working 24/7 and all the stress that comes with it. You’re going to get a real savings program set up and start paying cash for everything going forward. Your priorities have changed, even if you don’t have all the nice things like you and your neighbors had. By effectively using your Tunabudget Worksheet Plan, you decided to change your own hearts, lower the priority of having all this ‘stuff,’ and focus on the simple sweetness of life, such as living together in love and passion, like earlier days.
Total respect for each other and no more contention and anger. Suddenly it doesn’t matter anymore how you look to the neighbors and your friends. Your Tunabudget Worksheet Plan has convinced you from the ‘inside’ that you just want to be out of debt (or very limited and modest debt), and get a fresh new start. You are now willing to do whatever it takes to really start ‘living’ instead of just surviving, or pretending that you are living. Your Tunabudget Worksheet Plan has opened your eyes. Excitement builds to make this new life a reality, and in three to six months you estimate your world will be reset. Clear-headed decisions matter. You’re truly happy together, along with children.??
CANDID QUESTIONS
o?? Do you know of a friend or family member who has chosen to ‘have it all,’ and paid a big price?
o?? Where is your home, and thus, mortgage, on the ‘modesty’ scale?
o?? What about all the other things you have chosen to pay with credit?
o?? How much debt have you acquired? Why did you acquire it?
o?? Have you consolidated and refinanced your debts to where you owe much more than you did, say five or 10 years ago?
o?? At what price are you willing to pay to ‘keep it all up,’ at the expense of having other experiences in life with your family?
o?? Do you want the heavy debt load to pay for your assets, or do you want something less so that you can have things like memories instead?
o?? How much stress, anxiety, contention, and anger are in your life, your marriage, because of having excessive or overwhelming heavy debt?
o?? Are you ready for a change, or do you want to sink further in misery?
o?? ‘Should’ you afford your home, or move instead?
o?? Will you prepare a Tunabudget Worksheet Plan so that you can clearly see your overall and financial well-being?
o?? Are you sure? If so, get going. If not, happy life
?